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Building on the lessons of Terminal 5 hand over

Andrew Wolstenholme, BAA Capital Projects director interview by Antony Oliver.

A construction programme to transform airports by 2013Airport owner BAA is about to embark on an ambitious five year, £6.6bn programme to transform its seven airports. Capital Projects director Andrew Wolstenholme is in charge of delivering the challenges of post-Terminal 5 airport construction.

Think of BAA and you think of Heathrow Terminal Five (T5). After 15 years of planning and construction, the opening day of this high-tech facility at the world’s busiest airport was without doubt the airport operator’s finest and darkest hour all rolled into one.

To those close to the project, T5 will always be an engineering masterpiece which, constructed on time and to budget, pushed forward the concept of modern infrastructure delivery.

Yet many more will simply remember the opening day nightmare of thousands of delayed passengers, tens of thousands of lost bags and hundreds of cancelled flights. A public relations disaster. “I can’t pretend that there wasn’t a knock of pride,” says BAA Capital Projects director Andrew Wolstenholme, who led the T5 project and who now is responsible for delivering BAA’s £6.6bn programme of post T5 work by 2013.

“People believed that collectively we had all done enough, that the infrastructure was in place, delivered on time and on budget with extensive trials and testing,” he explains. “We are very disappointed.” And having spent so long planning and constructing this massive £4.3bn project, Wolstenholme clearly feels an acute sense of personal and collective loss from not having been able to celebrate the great work done on the project by more than 100 first tier suppliers and some 60,000 different people who contributed 100M man hours of work.

In hindsight it would have seemed more obvious to have done [the move to T5] in more incrementalsteps

Andrew Wolstenholme

Not least, since T5 was without doubt a very successful design and construction project. A project which saw client BAA buck the industry trend by driving a single team to successfully manage some very large construction risks, complex baggage systems and the integration of a myriad of critical IT systems. “We did that very well,” says Wolstenholme of the T5 project delivery. “We are very proud of that and the serious commentators in the industry know what we did. We broke the industry rule book, took on all the risk and we delivered that programme on time and on budget.”

But he is first to admit that, despite all the trials and testing it carried out at T5 before handover to British Airways (BA), and despite the physical equipment largely working well, the end product did not perform as planned. “On day one, the baggage system did what it was designed to do. But the system is only part of a complex end to end baggage process,” he explains. “With the benefit of hindsight it would have seemed more obvious to have done [the move into T5] in more incremental steps,” he adds.

All this is set to change. In the future, says Wolstenholme, the BAA Capital Projects team is intent on working much more closely with its airline customers to understand their business needs and make sure that all plans for new infrastructure are developed and handed over in close cooperation with them. “My accountability is now to ensure that the end product is going to work on day one,” explains Wolstenholme pointing out that in the past, responsibility for handover lay with a separate BAA corporate team.

“The structural change that [BAA chief executive] Colin Matthews has brought in takes out an important handover at the beginning of the process and at the end of the process,” he adds. “One of the drivers for getting simplicity into our organisation is to take out these handovers.” He says that if you are looking for key lessons learnt from T5 opening, one must be for BAA to “assure the smooth integration by all parties of projects back into the operating airline business”.

Civil Aviation Authority (CAA)

Civil Aviation Authority (CAA) BAA’s operations at Heathrow, Gatwick and Stansted are regulated by the CAA. By controlling how much BAA charges airlines and how much BAA spends on infrastructure, the CAA hopes to encourage efficient airport development. Every five years, new price controls are set and April saw the start of the fifth quinquennial period (Q5) which set price controls and spending plans for Heathrow and Gatwick Airports. Under the agreed plan, BAA will spend £4bn at Heathrow and £874M at Gatwick to improve facilities. The Q5 decision for Stansted will follow in 2009 after the current public inquiry into whether or not Stansted is to be permitted to expand capacity within the existing footprint

Competition Commission

In March 2007 the Office of Fair Trading asked the Competition Commission (CC) to investigate the supply of airport services in the UK on the basis that it suspected that BAA’s position as the owner of the UK biggest airports was preventing , restricting or distorting competition. In April, the CC ‘s “Emerging Thinking” report cast doubt on whether BAA’s airport ownership allowed proper competition. BAA agrees that capacity constraints in the South East were limiting competition and that longterm policies are needed to drive the development of air transport. “The challenge for us all in addressing the lack of capacity in the South East is how we ensure the timely delivery of investment,” says BAA chief executive Colin Matthews. “BAA remains committed to making the investments needed to transform our airports and improve passenger service standards.” The CC’s report is expected by the year end. If BAA is considered to be anti-competitive it could force BAA to sell assets for example Gatwick.  

 

Significantly one of Wolstenholme’s key programmes of work going forward at Heathrow will now be “airline moves” – a programme with very little capital investment but recognised as crucial to overall infrastructure success. “We’ll learn our lessons and we’ll put our front foot forward,” he explains, although he points out that BAA had been planning much of the recent organisational change long before T5’s opening crisis.

But BAA has to learn fast. It has big plans to develop its airports portfolio across the UK over the next five years – plans it hopes will stem the current tide of negative publicity about the poor condition of its assets and, in particular, the poor passenger experience at Heathrow.

As a former public monopoly, BAA airports in the South East (Heathrow, Gatwick and Stansted) are regulated by the Civil Aviation Authority (CAA) . As such, the amount it can charge airlines to use its facilities and thus the amount it must then plough back in to create new airport infrastructure is strictly governed and reviewed on a five yearly – quinquennial – cycle.

April 2008 saw the start of the fifth quinquennial cycle (Q5) governing the economic regulation of Heathrow and Gatwick. For historical reasons, the Stansted economic regulation report always comes a year later. At BAA’s other airports: Southampton, Aberdeen, Edinburgh and Glasgow, BAA’s investment plans are not regulated by the CAA.

In approving the programme the CAA gave a green light for a £6.6bn package of programmes which Wolstenholme says will “transform” all of BAA’s airports with 13 individual programmes of work. He points out that even before the T5 opening, BAA was clear that its whole approach to designing and procuring infrastructure had to be fundamentally shifted forward in Q5 compared to Q4, which was dominated by the T5 programme. “In Q4 we tended to have isolated projects supporting individual terminals,” he says. “Q5 is about programmes of work to transform our airports. We have a significant amount of capital spend at each airport with very clear visions about how we will transform each airport for our airline customers.”

BAA has of course prided itself over the last decade or more for leading the way when it comes to innovative procurement to drive down the construction costs and increase the quality. This began in the 1990s with the post-Latham “predictable performance” regime which led the way in delivery partnerships. This was followed in 2000 by the Egan report-inspired “lean delivery” which spawned the second generation frameworks and the T5 agreement – putting BAA at the heart of the construction process as the all seeing, risk aware, intelligent client.

2008 - 2013

“Q5 will be successful if we have really transformed our airports - if people continue to say ‘that was the best passenger experience’.”

Since 2006, BAA has been developing its third generation “capital value” procurement strategy with which to roll out its forthcoming programmes of work. At the heart of this is a greater understanding of the needs of airlines and passengers, which means addressing people, process and technology, as well as infrastructure solutions.

“We are losing none of the values that we have generated over the last 10 years. We are still very firmly anchored into creating integrated teams, creating single team cultures and leading in the same way that we did in Q4,” he says. “What is different here is that we are better able to articulate the risk profile of these programmes.”

Across the BAA airport portfolio there will be 12 programmes of work planned for Q5 – 13 if you include airline moves. Heathrow has five, totalling £4bn and Gatwick has two worth around £874M – assuming that BAA is not forced to sell this asset as the result of the ongoing Competition Commission review.

Future Heathrow focus

Heathrow in focus:
A.Terminal 1 - refurbishment of terminal building
B.Heathrow East - new terminal to replace Terminal 2 and Queen’s Building
C.Heathrow East - new satellite pier on eastern campus
D.Terminal 3 - refurbishment of terminal building includes new forecourt and piazza
E.Terminal 4 - refurbishment of terminal building, also includes new piazza
F.T5 - British Airways home
G.Terminal 5c - new satellite terminal to be constructed  

Stansted will have two programmes worth around £1.4bn assuming the regulator and on-going planning inquiry inspector grant approval. Consultation with the industry demonstrated that a T5 Agreement style cost reimbursable procurement process would not be suitable across the board in Q5. Suppliers wanted to take on more risk where appropriate. It was clear that different projects and different suppliers needed different procurement approaches to match risk to reward and optimise cost. “This is not now one cap fits all,” explains Wolstenholme. “You could characterise Q4 as us having many relationships with our first tier suppliers and broadly point to between 300 and 350 people that we had relationships with. We are now going to do 80% of our work through 15 to 20 suppliers.”

Agreements will be struck with partners across a number of different disciplines and risk profiles, passing accountability and programme risk down to the supply chain as appropriate. Complex Build Integrators will tackle complex, higher risk projects, typically worth between £30M and £300M. Commodity builders will handle the less complex, more definable jobs typically worth between £2M and £30M such as car parks and landside roads.

Wolstenholme says BAA should now be more able to focus on “the added value client role” – consulting with airlines, developing briefs, and passing on risk to suppliers when appropriate. Spending £6.6bn efficiently and effectively over such a short period will be a tough challenge, not least as little of the work is straightforward and more often than not has phases which are deeply intertwined. He adds: “I want to create opportunities for the best suppliers and for the best individuals in the industry to come together in an exciting environment. I want people to get up in the morning and to do something that matters to them,” he says. “Q5 will be successful if we have really transformed our airports – if people continue to write letters saying: ‘that was the best passenger experience and what a great building and infrastructure have been produced on the way there’”.

“There probably isn’t a more important or more challenging programme of work in the UK than transforming Heathrow.”

Boosting passenger capacity

Stansted second runway

In March this year BAA lodged a planning application for a second runway at Stansted. The application signalled the operator’s long term ambition to boost capacity at the airport beyond the single runway maximum of 35M passengers/year. The application is of course subject to public inquiry but BAA anticipates that if the application proceeds smoothly it could potentially start construction of the new facility in 2011 ahead of an 2015 opening.

Heathrow third runway

Although no formal planning application has been lodged for a third runway at Heathrow – and there will not be one before 2010 at the earliest – BAA has been working up plans which would see a new runway nestled between the airport and the M4 motorway. This new runway could take Heathrow’s capacity from the predicted 2012 maximum of 78M passengers a year to 122M.  “We have to get a closer relationship with the airlines and ensure that in meeting the programme and budgets agreed with the regulator for Q5, we deliver the improvements that the airline industry wants.”

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